Smart News International Mobility – July 2023

Smart News International Mobility – July 2023

The whole LPA-CGR avocats mobility team is pleased to present its new Smart News. Please find below a selection of international legislative and jurisprudential news related to mobility issues.

EUROPE : France

ASIE : Hong Kong | Chine

AFRIQUE : Casablanca

MOYEN ORIENT : Dubaï

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EUROPE

France :

• Legislative and regulatory news

New framework agreement on cross-border teleworking to come into force on July 1, 2023

An agreement designed to facilitate cross-border teleworking and its social security aspects has been signed by a number of European Union countries, including Germany, France, Belgium and Luxembourg, as well as Switzerland. Under this agreement, people who work in the country where their employer is based can telework in their country of residence, provided that less than 50% of the telework is carried out in their country of residence, and that both countries are signatories to the agreement. This agreement only applies to cross-border teleworkers, and not to people working for several employers, or to self-employed workers. The employer will have to request an A1 certificate valid for a maximum of 3 years.

 

Arrangements relating to the posting of workers

The decree of March 17, 2023 no. 2023-185 and the order of March 28, 2023 modify the content of the pre-detachment declaration and the detachment certificate, which will no longer have to mention the date of signature of the seconded employee’s employment contract, as well as the times at which work begins and ends, and the hours and duration of the seconded employee’s rest period.

They also modify the list of documents to be kept at the workplace, and to be made available to the labor inspectorate during the secondment. The documents attesting to the law applicable to the contract binding the employer and the co-contractor established or operating on national territory, as well as the number of contracts performed and the amount of sales generated by the employer in his country of establishment and on national territory.

These texts also specify the powers and means of intervention of the labor inspectorate in the event of failure to comply with obligations relating to formalities prior to secondment.

 

Posting of workers of transport companies

Since January 1, 2023, pursuant to the ordinance of October 5, 2022 supplemented by the decree of October 21, 2022, transport companies will have to declare the secondment of their drivers or crew members (for cabotage and non-bilateral international transport operations), and no longer be satisfied with the secondment certificate (except for light vehicles, intra-group secondment or secondment by a temporary work company established abroad).

For companies from a Member State, the posting declaration is made on the public portal managed by the European Commission.

For companies established outside the Member States, pending the extension of the public portal to these companies, they must declare their workers via the national SISPI portal.

 

Recovery and management of the tax on the hiring of foreign employees

The tax provided for in article L. 436-10 of the CESEDA for the hiring of an employee is now collected and controlled according to the same procedures and under the same sanctions, guarantees, securities and privileges as taxes on turnover. Similarly, claims are presented, investigated and judged according to the rules applicable to these same taxes.

In concrete terms, this means that the management and collection of the tax for the hiring of a foreign worker is transferred from OFII to the DGFIP.

 

Application of the 10% penalty for late filing of an estate declaration in case of death abroad

The legal deadline for registering an estate declaration is six months from the date of death in France and one year in case of death abroad. If the declaration is filed after the deadline, a 10% penalty is incurred, in addition to the application of interest for late filing.

According to article 1728 of the French General Tax Code, this penalty is only due at the end of the first day of the seventh month following the expiration of the six-month period, i.e., at the end of a one-year period from the date of death.

A ministerial reply of June 2, 2022 specified, on a particularly strict reading of this text, that in the event of death abroad, the heirs do not have an additional six months before being subject to the 10% penalty and late payment interest, which will therefore be due as soon as the legal one-year period to proceed expires.

This position, from which it follows that the penalty and the late interest apply in the absence of filing of the declaration of succession after one year of the death, regardless of the place where the death occurred, calls for vigilance in case of death abroad, in particular to file a declaration before the expiration of the legal deadline.

 

New reporting obligation for property owners as of January 1, 2023

The abolition of the housing tax for primary residences has resulted in the creation of a new annual reporting obligation for owners of real estate located in France as of January 1, 2023, whether or not they are French tax residents or whether the property is owned directly or through a company, in order to declare the occupancy status of these properties.

For non-residents, it will be necessary to declare whether the property is occupied as a secondary residence or rented, seasonally or not (in which case they remain subject to the housing tax) or vacant (also subject to taxation).

Optional in 2021, this declaration will become mandatory by June 30, 2023 and will be subject to a fixed tax fine of 150 € per property in case of omission, error or insufficient declaration.

 

• Jurisprudential news

No contributions on mobility bonuses if their beneficiaries are not affiliated to French social security

In a particular case (Cass. civ., 2nd, October 13, 2022, n°. 21-13.252), URSSAF had notified a company of an adjustment to reintegrate expatriation and expatriation bonuses into the social security contributions base. The employer argued that the employees in question were not affiliated with the French social security system but only with the CFE (“Caisse des Français de l’Etranger”, the complementary insurance for seconded/expatriate employees).

The second civil chamber of the Supreme Court recalls that workers seconded abroad by their employer to perform an activity as an employee or similar and remunerated by that employer are subject to French social security legislation (pursuant to the law or a bilateral agreement) provided that the employer undertakes to pay all contributions due in France and in the host country (not only the contributions due to the CFE). Seconded employees only pay contributions in France by way of exception, which was not the case in this instance as the employer did not agree to pay contributions due by employees: they only paid contributions to the CFE, which is a complementary insurance company. The French Supreme Court therefore overturned the appeal decision which had refused to annul the company’s adjustment.

 

Withdrawal of the cancellation of the issuance of a certificate of secondment for formal defects: the judge retains his power of appreciation and sanction

The decision in question (Cass. crim., November 29, 2011, n° 22-80.545) concerns two companies and their manager prosecuted for concealed work. The URSSAF also claim for civils damages on the basis that the secondment certificates produced by the companies and their manager were fraudulent. The defendants produced A1 certificates issued by the Slovakian social security organization that were not valid for the secondment of their employees. The French social security office had doubts about the validity of these A1 certificates and obtained their withdrawal from the Slovak social security office. However, the withdrawal of the secondment certificates was annulled by the Slovak judge on a formal ground (excessive length of the procedure).

As the annulment was not based on a substantive ground, the judges were able to deduce from the documents in the file that the certificates were fraudulent and had no probative value. They were therefore able to convict on the charge of concealed employment by concealing salaried jobs. The French Supreme Court validated this reasoning as well as the civil action brought by URSSAF.

 

A1 certificate does not negate conviction for concealed work

In this case (Cass. crim., May 17, 2022, n° 21-85.246), a company and its director were prosecuted for concealed work. They hired Portuguese workers posted in France for tax and social security optimization purposes. The judges convicted the defendants of concealed work on the grounds that a certain number of A1 certificates had not been communicated to the local Portuguese authorities, even though they had made use of them before the French control authorities. The judges deduced that the certificates produced were false materials.

The Court of Cassation validated the conviction and added an important clarification: “the production of A1 certificates for some or all of the employees concerned, even if the said forms had been authentic, was not such as to prevent the court from declaring the latter facts established“. In concrete terms: producing an A1 certificate is not a guarantee against criminal prosecution.

 

Obligation to verify the regularity of the posting situation

In a recent decision (Cass. crim., Feb. 21, 2023, n° 22-81.903), the French Supreme Court recalls that the legal entity that contracts with a company established in another EU Member State must, in all cases, obtain from the latter the A1 certificate attesting to the regularity of the social situation of the co-contractor regarding regulation (EC) n° 883/2004 for each of the posted workers to whom it has recourse.

Then, in coherence with the European jurisprudence on the scope of the A1 certificates, it affirms that the principal who does not verify the regularity of the situation of the company whose services he uses and, when the latter is established in another EU Member State, the possibility of providing the certificates for all the posted workers, knowingly commits the crime of using a person carrying out concealed work.

 

Social fraud and provisional withdrawal of A1 certificates

What is the value of the „provisional“ withdrawal of an A1 certificate by the issuing institution, in a context of social fraud? The CJEU has just answered this novel question in a judgment of March 2, 2023 (CJEU, March 2, 2023, case C-410/21).

The A1 certificate issued by the competent institution of a Member State commits on the institutions and courts of the Member State in which the work is performed, including where a request for withdrawal has been addressed by the competent institution of the latter Member State to the issuing institution and the latter has declared that it is provisionally suspending the binding effects of that certificate until it takes a final decision on that request.

However, while the provisional suspension of an A1 certificate does not, itself, deprive the certificate of all effect, the delay in processing the request for withdrawal addressed to the issuing institution opens the possibility of invoking the fraudulent obtaining of the A1 certificate before the criminal courts.

The judgment also dealt with the value of the Community transport licence for identifying the place of the company’s registered office, to determine the applicable social legislation. The Court concludes that the possession of a European road transport licence by an undertaking may be a factor taken into account in determining its registered office or place of business, but cannot constitute automatic or irrefutable proof of this, nor can it bind the authorities of the State in which the work is carried out.

 

The irregular situation of a foreign employee justifies his dismissal but is not in itself a serious fault

The French Labour Court has handed down an important ruling on the relationship between disciplinary law and international mobility (Cass. Soc., November 23, 2022, no. 21-12.125). A foreign employee was hired on a permanent contract as a night watchman. Noting the employee’s illegal status, the employer notified him of his disciplinary layoff (unpaid), followed by his dismissal based on the absence of a residence permit.

The French Supreme Court upheld the principle of termination. It points out that the employer may not hire or retain in his service a person in an irregular situation (article L. 8251-1 of the Labor Code) and that this is an objective cause for termination of the employment contract exclusive of the provisions on dismissal, i.e. a sui generis dismissal (Cass. Soc., July 4, 2012, no. 11-18.840).

However, the Cour de cassation has ruled that this dismissal is not culpable and that it is up to the employer to demonstrate a fault distinct from the mere irregularity of the employment and must state this in the dismissal letter, since „only serious fault can justify a precautionary layoff and non-payment of salary during this period“. An employee in an irregular employment situation must therefore be paid during the period of layoff, and, it should be remembered, is entitled to payment of wages and ancillary benefits for the period of unlawful employment.

 

ASIE

Hong Kong :

• Jurisprudential news on the fate of penalty clauses in employment contracts

The cases of Law Ting Pong Secondary School v Chen Wai Wah [2021] CA 873 („Law Ting Pong“) and Ng Yan Kit Alfred & Or v Ever Honest Industries Limited & Or, [2022] HKCFI 1834 („Ng Yan Kit“) have confirmed that in Hong Kong, courts must apply the „modern test“ to determine whether a clause is a penalty clause, as set out in the landmark decision of the UK Supreme Court in Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2016] AC 1172 („Cavendish“).

Law Ting Pong and Ng Yan Kit both concerned the termination of an employment contract. The subject was to know if an obligation to pay a contractually predetermined amount on termination could be imposed on the terminating party or whether such an obligation was unenforceable on the basis that it constituted a penalty clause, which is, in principle, invalid under Hong Kong law.

In Law Ting Pong case, a teacher accepted a job offer from a school, but terminated his contract before starting work.  Relying on the termination clause in the employment contract, the school demanded three months‘ salary in lieu of notice. Applying the principle established in Cavendish, the Court of Appeal (the „CA“) held that the doctrine of penalty clauses did not apply if the obligation to pay was a primary obligation. In other words, if the agreement provides that a party must pay a certain amount, not because of the breach of an obligation, but because that is the method by which it is required to act under the agreement, then that obligation is directly enforceable.

In Law Ting Pong case, payment of the dismissal compensation was the only method by which the employee could terminate the contract without notice.  The CA therefore held that the dismissal compensation was a primary obligation. It was not a penalty clause but a contractual debt that was recoverable. Citing Cavendish, the CA also held that even if the termination fee was not a primary obligation but a secondary obligation arising from the breach of a primary obligation, the obligation could still be enforceable. The test would be whether the obligation to pay a termination fee was disproportionate to the innocent party’s legitimate interest in enforcing the contract. The CA also agreed with Cavendish’s conclusion that a party might have a legitimate interest in enforcing the contract or in an appropriate alternative to enforcement that goes beyond compensation. Applying these principles to Law Ting Pong, the CA concluded that the school had a legitimate interest in having the teacher begin employment as agreed in order to ensure sufficient teachers for the school’s programs. Thus, even if the termination fee had been a secondary obligation, it would not be a penalty clause but rather a lump-sum compensation clause with a pre-determined loss that is properly enforceable.

In Ng Yan Kit, an employer agreed not to terminate an employee during the first three years of the employment contract and to pay two years‘ salary as compensation if the employee was terminated during that period. The employer then dismissed the employee during the first three years and paid only three months‘ salary as compensation. The Labor Court rejected the employee’s claim for two years‘ salary as compensation. On appeal to the Court of First Instance, the Court confirmed that the jurisdictions should follow the principles set out in Cavendish as applied by the CA in Law Ting Pong.

 

• Abolition of the device for offsetting redundancy payments against compulsory pension contributions

Hong Kong has passed a new law to provide better protection for employees‘ pension rights in the event of termination of employment. The earliest the reform will take effect is 2025.

Under the Hong Kong Mandatory Provident Fund (MPF), employers are required to make mandatory contributions of up to HK$1,500 per month to the individual MPF accounts of their employees. In addition, employers may make voluntary contributions. When an employee is dismissed, the current law allows the employer to deduct the amount of employer’s contributions paid throughout the performance of the employment contract from the severance pay due to the employee.  With the entry into force of the reform, employers will no longer be able to make this deduction. However, employers will still be able to deduct their voluntary contributions from the severance payments. The Hong Kong government is committed to helping small and medium-sized enterprises adapt to the new regime by providing subsidies totaling more than HK$33 billion over a 25-year period.

 

China :

On January 8, 2023, all prevention and control measures related to COVID-19 in China were lifted. The borders have been reopened and it is now possible for foreigners to apply for work and residence permits to work in China. There are no longer any special formalities to be completed and we are back to pre-COVID-19 procedures.

COVID-19 has been incorporated into Chinese regulations and is now classified as a Class B infection. Thus, the employee suffering from COVID-19 benefits from social protection and can request a sick leave. The extension of the contract period or the termination of the contract in case of COVID-19 is also subject to the disease regime.

The inclusion of COVID-19 in this classification therefore allows the person concerned to request sick leave when unable to work. The employer is then obliged to extend the duration of the employment contract until the end of the sick leave. During this period, the employer cannot unilaterally terminate the employment contract.

However, this protection is not only for the employee, but also for the employer. Thus, the employee cannot refuse to work because of a risk of infringement of the COVID-19 in the workplace. It is also recalled that telecommuting is a right that can be granted to employees but subject to prior agreement obtained from the employer.

Finally, in all cases, the employee with COVID-19 must inform his or her employer so that the employer can ensure the safety of other employees.

 

AFRICA

Casablanca :

Scope of the jurisprudential reversal relating to foreign employment contracts – CTE- in Morocco and new tax rules applicable to severance payments

1. In a decision handed down on July 24, 2018, the Moroccan Court of Cassation made a jurisprudential shift regarding the status of foreign employment contracts (CTE), which have since been deemed to be open-ended contracts where the parties have so agreed, despite the provisional nature of the visa affixed thereto, which is valid for a limited period.

Since then, what has been the scope of this decision, and in particular, how has it been applied by the lower courts, and have there been any other decisions by Morocco’s highest court that have reaffirmed this position and clarified it?

In the months following the reversal, several Court of Cassation rulings reiterated the main principles of the aforementioned decision, i.e. (i) that the recruitment of a foreign employee is not one of the limited cases provided for by law for the conclusion of a fixed-term contract, (ii) the primacy of the will of the parties – to conclude a contract for an indefinite period – and lastly, (iii) compliance with international conventions prohibiting any discrimination between Moroccan and foreign employees.

In practice, however, we have observed a reluctance on the part of courts of first instance and appeal courts to apply these principles, forcing the highest court to quash these decisions and send them back to trial. This is why legal writers are calling for the law to be clarified by amending articles 516 et seq. of the Labor Code.

 

2. It is worth recalling what is at stake in this reversal, which determines the amount of compensation in the event of dismissal of a foreign employee. Under the previous case law, the practice was not to renew the CTE or to terminate it two to three months before it expired, so that the dismissed employee could only benefit from the salary remaining due, generally corresponding to his notice period. The reversal gave the dismissed foreign employee the right to claim statutory severance pay and damages in the event of unfair dismissal.

Prior to the 2023 Finance Act, all compensation and damages awarded following a court decision or conciliation were exempt from income tax, with no ceiling on the amount. The recent Finance Act introduced a ceiling of 1 million dirhams for the application of this exemption, above which such indemnities are now taxable.

 

MIDDLE-EAST

Dubaï :

AMENDMENT TO THE LABOUR LAW

Following the entry into force on February 2, 2022 of Federal Decree-Law No. 33 of 2021 (the „Labour Law“), the Ministry of Human Resources and Emiratisation („MOHRE“) has amended the Labour Law with the issuance of Federal Decree-Law No. 14 of 2022 (the “Amendment”).

It removes one of the major changes of the Labour Law which was the compulsory three-year duration of fixed-term employment contracts in the private sector.

While the Amendment does not provide for a return to unlimited duration contracts, it allows more flexibility to the initial three-year period of employment duration. As a consequence, this initial three-year limit can be kept or alternatively replaced by a longer fixed period of any number of years as agreed between the parties (which could be the three years as stated by the Labour Law before the Amendment or, for example, periods of five or 10 years). Employment contracts can be renewed without limit after the expiry of the first mutually agreed term on the agreed basis.

However, please note that any company which intends to amend employment contracts still governed by the former labour law (i.e contacts with unlimited terms) and to provide for longer period of employment than three years, must have updated the said contracts from February 1st, 2023.

 

UNEMPLOYMENT INSURANCE SCHEME

Recently the MOHRE announced that purchasing an insurance scheme against job loss will be a mandatory requirement once the Unemployment Insurance Scheme (the “Scheme”) regulated by the Federal Decree Law N. 13 of 2022 comes into force on January 1st, 2023.

The purpose of the Scheme is to provide an income for a limited period not exceeding three consecutive months per claim, in the event of an eventual situation of unemployment. The potential beneficiaries will be all the employees of federal government departments and private sector companies, with some exceptions; investors, domestic workers, contractual or temporary workers, juveniles under 18, and pension-receiving retirees who have joined a new employer.

There are some other eligibility criteria to consider:

There must be a minimum subscription period of 12 consecutive months for the insured in the scheme;

• The insured may not be dismissed for disciplinary reasons;
• The reason for unemployment should not be resignation;
• The insured shall not be entitled to compensation if there has been fraud or deceit involved in his/her claim.

The employees meeting the criteria appointed above will be eligible to receive 60% of their basic salary during unemployment. The subscription fee and maximum compensation depend on the employee’s category:

1. Employees earning a basic salary of AED 16,000 and under will pay a monthly subscription fee of AED 5, and they will receive a maximum compensation of 10.000.
2. Employees earning a basic salary AED 16,000 and above will pay a monthly subscription fee of AED 10, and they will receive a maximum compensation of 20.000.

Employees will be able to participate in the Scheme through subscriptions channels including (i) the Insurance Pool’s website (www.iloe.ae) and smart application; (ii) bank ATMs and kiosk machines; (iii) business service centres; (iv) money exchange companies; (v) Du and Etisalat; or (vi) by SMS.

 

EMIRATISATION

Emiratisation is an initiative by the UAE government which promotes the employment of UAE nationals in the private sector.

Private companies registered with the MOHRE (i.e. outside of the freezones) should consider the recent changes introduced by Ministerial Decision No. 279 of 2022 (the “Decision”) that will take effect from January 1st, 2023.

Quotas will operate in the private sector by reference to a number of “skilled employees” (as defined in the Decision) as follows:

• Between 0 and 50 skilled employees: one national
• Between 51 and 100 skilled employees: two nationals
• Between 101 and 150 skilled employees: three nationals
• 151 skilled employees and more: one national for every 50 employees.

The objective of the program is to reach at least a 10% Emiratisation rate in 2026 whilst banks and insurance companies will remain subject to separate rates at 4 and 5% respectively.

Private sector companies will be classified in three tiers to incentivize compliance with the Emiratisation requirements. Companies not complying with the quotas will be subjected to fines as detailed in the Decision.

 

The whole LPA-CGR avocat mobility team is at your disposal should you need further information.